Goldman Sachs momentum factor plunges 20% in worst selloff since 2020

The selloff in US momentum stocks accelerated to its most violent pace since the Covid-era rotation trade, with Goldman Sachs's High Beta Momentum Factor tumbling more than 20% in five trading sessions.

Goldman Sachs's High Beta Momentum Factor plunged about 6% in a single session and more than 20% over five days, the worst such rout since the 2020 rotation out of stay-at-home stocks.

"The selloff is the most violent we have seen since the shift from the Covid stay-at-home narrative to the reopening trade, but this time lacks comparable fundamental catalysts," said Guillaume Soria, a trader at Goldman Sachs.

The rout was triggered by a one-two punch from the global AI supply chain. Samsung Electronics posted record operating profit in preliminary results but revenue came in slightly below buy-side expectations, sending shares down 9% in Seoul. Separately, DeepSeek announced plans to develop proprietary AI chips, intensifying concerns about hardware spending. The selling cascaded across the AI complex: the SOXL semiconductor ETF saw volume surge 35% above its 30-day average and has now fallen 50% from its all-time high set just 10 trading days ago. DRAM-related volume ran 60% above average, while the broader SMH ETF traded 30% above its norm.

Despite the ferocity of the move, Goldman's trading desk said it has not yet seen panic-mode liquidation. The de-risking has been driven by systematic and factor-based flows rather than forced selling. Retail investors provided the biggest cushion, flipping to net buyers during the session with net inflows hitting the 90th percentile of the three-year lookback period. Still, with the momentum factor still up 23% year-to-date and positioning only recently retreating from historical extremes, Goldman warned that further downside remains possible in the absence of fresh catalysts.

The selloff has partially reset the extreme positioning that built up during the first half. The GSPRHIMO factor's one-year percentile rank has fallen from an all-time high to the 60th percentile, according to Goldman. But the index remains well above oversold territory, leaving room for additional declines if negative news continues to accumulate.

UBS's cash trading desk corroborated Goldman's assessment, describing the excess selling flow as mild relative to historical stress events. However, the bank cautioned that an orderly de-leveraging could tip into panic liquidation if the selling persists.

The rotation has not been uniform. Within the S&P 500, 283 components closed higher on the day, suggesting the selling was concentrated in high-beta and AI-exposed names rather than the broad market. This dispersion aligns with Morgan Stanley strategist Michael Wilson's thesis that market leadership is broadening beyond mega-cap technology.

July has historically been one of the worst months for momentum factors, and this month is on track to be the worst July on record for the GSPRHIMO. Goldman's historical data shows the factor's maximum drawdown is roughly double the current decline, meaning the selloff could deepen significantly if market leadership shifts.

Soria described the current phase as potentially the later stage of the correction but warned that negative news could widen existing cracks into a more severe downturn. "If the cracks become a chasm and market leadership shifts, this could evolve into a deeper correction," he said.

This article is for informational purposes only and does not constitute investment advice.